It’s the trillion pound question: what impact will Brexit have on the UK and Europe’s asset management industries?

EU single market passporting and delegation rules have been vital to the size and strength of the UK asset management sector. But with passporting and delegation under threat as the clock ticks down to Brexit day with potentially no transition agreement and no comprehensive and dependable financial services equivalence deal, investment manager eyes are increasingly turning to the EU’s major fund hubs: Luxembourg and Ireland.

The importance of an EU ManCo

As law firm McGann FitzGerald points out[1], EU rules mean each UCITS must appoint an EEA-domiciled management company (ManCo) – which has overall responsibility for functions such as discretionary investment management, fund administration and distribution.

But unless some form of post-Brexit access deal is reached, and soon, UK-based UCITS ManCos won’t be allowed to manage a UCITS or take advantage of the EU management passport. UK investment managers instead will have to establish or hire an EEA-based ManCo.

It’s a similar quandary for UK Alternative Investment Fund Managers (AIFMs), which will need an EEA-based AIFM to benefit from the AIFMD passport.

Rise of the Super ManCo

One option is to take advantage of the growing breed of dual-authorised Super ManCos. Rather than providing cross-border management company services for either a UCITS or AIF, these entities can support the regulatory compliance and operating requirements for both types of fund under a single umbrella.

According to McGann FitzGerald, the Central Bank of Ireland has “streamlined the authorisation, on-going supervision, managerial functions and governance of AIFMs and UCITS ManCos.” This now makes establishing an Irish Super ManCo an attractive option.

For instance, Legal & General Investment Management (LGIM) received regulatory approval for a Dublin-based Super ManCo in May last year, which the firm will use to manage its European funds as part of its Brexit contingency plans[2].

Others – such as Nomura Bank subsidiary Global Funds Management (GFM), which has added a UCITS management company licence to its AIFM one[3] – are setting up as Super ManCos in Luxembourg in a bid to expand their third-party client bases.

A powerful use case

Operating as a Super ManCo is no easy task. Our experience in working with industry participants reveals that success requires a broad blend of expertise, a comprehensive service mix, and a robust and scalable supporting infrastructure.

When done well though, it allows providers to service different fund structures and a range of AIF and UCITS investment strategies with a single:

• legal entity;
• board of directors and executive team;
• capital adequacy requirement;
• regulatory manual and framework;
• audit.

So rather than needing a separately regulated and capitalised entity per fund range, by centralising and consolidating functions in this way, Super ManCos can provide clients with greater operational and regulatory efficiencies and expertise – not to mention access to those all-important pan-EEA passporting regimes. In addition, it will be easier and quicker to launch new product ranges, since no ManCo-related approvals are required.

It’s a powerful proposition. And as Europe’s investment funds industry girds itself for the changes to come, we can expect to see the Super ManCo model become increasingly popular.

 

[1] Brexit: Establishing a Fund Management Company in Ireland, McGann FitzGerald, 13 April 2017, https://www.mccannfitzgerald.com/knowledge/brexit/brexit-establishing-a-fund-management-company-in-ireland

[2] LGIM transfers European client funds to Dublin, by David Campbell, 14 May 2018, https://citywire.co.uk/wealth-manager/news/lgim-transfers-european-client-funds-to-dublin/a1119298

[3] Nomura Luxembourg subsidiary becomes ‘super ManCo,’ by Nick Fitzpatrick, Funds Europe, 20 February 2018, http://www.funds-europe.com/news/nomura-luxembourg-subsidiary-becomes-super-manco